British legal researcher Liza Lovdahl Gormsen has launched a class-action claim against Facebook in the U.K. that alleges Facebook abused its market dominance to exploit users' personal data starting February 2016.

On the origins of the idea of a class action:

If a Facebook user is unhappy with the social media platform, it is not economically viable for them individually to sue Facebook, as litigation is extremely costly. Also, this is a systemic problem relevant to all Facebook users in the U.K., so a class action is a good way to attempt to compensate them. I started thinking about Facebook’s exploitation of its users some time ago, which it is well documented in a couple of papers [on SSNR in 2019 and the Journal of Antitrust Enforcement in 2021]. The theory of harm in the class action, which is filed before the UK Competition Appeal Tribunal, relies on unfair trading condition and excess profit.

On the theory of harm critical to the suit:

The UK Competition Act of 1998 contains a provision of abuse of dominance and exploitation of consumers. It is a two-step test, where the company in question must be dominant in a specific product market and have abused that dominant position. Such an abuse can be either exclusionary or exploitative. When it’s exclusionary, we refer to an abuse of dominance that excludes competitors in the market, while exploitative abuse happens when there is direct harm to consumers. In the U.K., exploitative abuse cases are mainly in relation to excessive prices by, for example, pharmaceutical companies that bump up medication prices very subtly.

The theory of harm in the class action against Facebook is based on exploitative abuse, where the exploitation is the unfair trading conditions imposed by Facebook — rather than unfair pricing. This type of abuse has been a blind spot in European — and to some extent the U.K. — antitrust for a long time. The claim touches upon three areas of law: consumer protection, data protection, and antitrust. During the claim period Facebook users did not have a choice to opt out of data collection on Facebook nor data collection off the platform. If consumers want to use Facebook’s platform, they have no other choice but to consent to its terms and conditions on a ‘take-it-or-leave it’ basis.

On determining the lawsuit’s time frame:

The UK Consumer Rights Act 2015 came into force on Oct. 1, 2015, and operates with a limitation period of six years, which was decisive for our claim period. It is understood that Facebook changed its terms and conditions on Jan. 1, 2020, to allow its users to opt out of data collection off Facebook, thus our claim period stopped on Dec. 31, 2019. This has not solved the situation for Facebook users, since they still have to navigate a myriad of complicated terms and conditions to opt-out.

On calculating compensation of at least $3.2 billion (£2.3 billion):

Generally, there are a number of ways you can look at this issue. One is to ask what the data is worth. But that would be a very difficult task because you and I have different ideas of what our data is worth. Therefore, we’re using an economic model based on the generation of excessive profit, which is known to economists around the world, where we look at what the data is worth within the business model. Here the question is how much the advertisers who had access to this data were willing to pay for it. This method can be replicated for any other country as well.

On the impact of a successful outcome:

In a class action, the only possible remedy I can request as a claimant is monetary compensation. I don’t have the power to impose structural or behavioral remedies. However, this can have serious consequences for the business model. Facebook has allegedly earned excessive profits in the digital advertising market thanks to its data exploitation of its users, which were not paid for their data. If Facebook has to compensate users for their data, that means that their business model will be less profitable. It also sends a signal that data is a valuable asset, and everybody who relies on such a business model will potentially need to pay for that input.

Facebook’s business model relies on targeted advertising. Having an advertising business is not a problem and has been used by content providers for decades. However, a business model that relies on individually targeted advertising requires a lot of personal data. If Facebook had had to pay for the data input, the business model that we have today would have been different. Here’s an analogy: Imagine a pharmaceutical company is developing a vaccine. This will require specific raw materials delivered by a number of suppliers, but if the pharmaceutical company did not pay its suppliers, there would be no vaccine. Similarly, Facebook users pay with their data, time, and attention. Although Facebook provides access to its platform for “free” — from a monetary point of view — what users give compared to what they receive is disproportionate. Facebook is getting much more from its users than the users get in return.

Published: Friday, 11 February 2022